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Lineage Raises $700 Million From Stake Sale to Stonepeak, D1

(Bloomberg) -- Lineage Logistics LLC, which calls itself the fastest-growing provider of temperature-controlled services such as transportation and storage, sold a minority stake worth $700 million, according to its chief executive officer and co-founder.

Lineage and some of its early investors sold the interest to funds managed by infrastructure-focused Stonepeak Partners LP; D1 Capital Partners, run by Daniel Sundheim, the former chief investment officer of Viking Global Investors; and some existing backers, Lineage CEO Greg Lehmkuhl and co-founder Kevin Marchetti said in an interview.

Lehmkuhl declined to disclose Lineage’s valuation, but said the company oversees almost $4 billion in real estate. While some of the capital raised in the stake sale is being used to cash out existing investors, part of it will be used to fuel Lineage’s growth, Lehmkuhl and Marchetti said. The company’s longstanding investors include W.P. Carey Inc., Fortress Investment Group LLC co-CEO Peter Briger, former Morgan Stanley CEO John Mack and ValueAct Capital Management LP’s Jeff Ubben, according to a person with knowledge of the matter.

“We’ll invest in new sites, expand our current sites, pursue M&A in what is still a fragmented industry and continue to invest in technology,” Lehmkuhl said. He and Marchetti declined to disclose which early investors either reduced or increased their stakes.

Lineage, which has annual revenue of more than $1 billion, has been consolidating the cold-storage sector. Last month, it acquired a smaller Wisconsin-based rival and a portfolio of four leased warehouses in southeastern states. It has also been pursuing organic growth by expanding existing facilities in states such as Texas.

REIT Consideration

The company is exploring converting to a real estate investment trust structure, among other options, but such a move isn’t imminent, a person with knowledge of the matter said. Lehmkuhl declined to comment on a REIT conversion, but said his hiring in 2015 -- and that of Chief Financial Officer Matthew Hardt, who joined last year from Cooper-Standard Holdings Inc. where he held the same role -- were part of a push to help institutionalize Lineage and make it more sophisticated. He added that the company has no immediate plans for an initial public offering, but that it remains an option in the future.

The Novi, Michigan-based company, which was formed in 2012, is controlled and operated by Bay Grove. Lineage operates in every U.S. state but Alaska and Hawaii, as well as the U.K., the Netherlands and Belgium. Its 7,000 employees, using automation, process 30 million tons of produce per year. The company’s more than 105 warehouses have combined storage capacity of 800 million cubic feet (23 million cubic meters), following growth at a compound annual rate of roughly 68 percent since 2008, when San Francisco-based Bay Grove first began buying warehouses that eventually were merged into Lineage.

For now, Lehmkuhl says Lineage is focused on satisfying its customers’ needs by expanding further in North America and Europe, with no immediate plans to expand into Asia.

Americold IPO

Lineage’s main rival, Americold Realty Trust, has seen its stock climb more than 35 percent since its January initial public offering. Before going public, the Atlanta-based company had explored selling itself, attracting interest from Blackstone Group LP’s private equity arm, according to people with knowledge of the matter. As of March, Americold had 158 temperature-controlled warehouses with about 934 million cubic feet of space.

Lehmkuhl said the cold-storage industry is attractive to investors because it’s so closely linked to food, making it somewhat recession-resistant. Additionally, the rise of e-commerce for food ordering and delivery is only just taking off. Research from the Food Marketing Institute and Nielsen Holdings Plc published in January predicts that, in as few as five years, 70 percent of U.S. consumers will be shopping online for groceries, spending a combined $100 billion by 2022 or 2024.

“If this happens, the need for temperature-controlled warehousing and logistics will expand exponentially, so our services will become much more valuable than they already are today,” Lehmkuhl said.

Board Members

With the stake purchase, Stonepeak’s Luke Taylor and James Wyper will join Lineage’s board. Before the transaction, the company talked to firms that invest in private equity, real estate and infrastructure, as well as sovereign wealth funds, conglomerates and technology companies, said Marchetti, also co-executive chairman of Lineage.

“We’re fortunate to have access to a lot of different capital by being at the cross-section of real estate, food infrastructure and logistics,” Marchetti said. He co-founded Bay Grove and Lineage with Adam Forste, Lineage’s other co-executive chairman.

Lineage also sees itself as an early adopter of technology to drive cost efficiency in its business. In addition to using energy-saving LED lighting in its facilities, the company has installed thousands of temperature sensors to monitor in real time how individual aisles within cooling or freezing rooms around its network are performing.

Lineage partners with more than 2,000 customers, from family-owned businesses to some of the world’s largest companies, including General Mills Inc., Coca-Cola Co., Tyson Foods Inc., Lamb Weston Holdings Inc. and Subway Restaurants. E-commerce giant Amazon.com Inc., which now owns Whole Foods Market Inc., isn’t a customer, but could be in the future, Lehmkuhl said.